Written by Aahini Gandhi and Tanay Hindocha.

I. INTRODUCTION

Minimum Public Offer (“MPO”), as provided under Rule 19 (2)(b) of the Securities Contracts (Regulation) Rules, 1957 (“SCRR”), requires that at the time of listing, a minimum specified percentage of the company’s securities must be offered to public investors. In contrast, Minimum Public Shareholding (“MPS”) is a continuing statutory requirement under Rule 19A of the SCRR, which mandates that a listed company must maintain at least 25% of its shareholding with the public at all times, subject to defined timelines for compliance.

The regulatory framework has evolved to accommodate the needs of large issuers. The Securities Contracts (Regulation) (Amendment) Rules, 2021, notified on June 18^th,  2021, revised Rule 19(2)(b) by bifurcating the earlier single category of issuers with post-issue Market Capitalization (“MCap”) above ₹4,000 crore: those with post-issue market capitalization above ₹4,000 crore but less than or equal to ₹1,00,000 crore and a new tier of very large issuers with post-issue market capitalization above ₹1,00,000 crore. Building on this step and continuing its effort to promote capital formation and in furtherance of its commitment to improve the ease of doing business in India, Securities and Exchange Board of India (“SEBI”) has released a consultation paper on August 18^th, 2025, recommending amendments in the requirements of MPO and timelines for MPS compliance. The board’s recommendations will be communicated to the Department of Economic Affairs in the Ministry of Finance for the necessary amendments to SCRR.           

II. RATIONALE

Recommendations made within the consultation paper are based on SEBI’s Primary Markets Advisory Committee (“PMAC”) report. They are supported by market players’ responses and analysis of recent trends of initial public offerings (“IPOs”). One of the key reasons for this proposal is that large issuers face the challenge of implementing significant equity dilution when going for an IPO, as the market may not be able to absorb such large-sized offerings. Moreover, mega IPO issuers might be discouraged by a large share of equity being diluted upfront. They further face issues after listing, as they need to dispose of an additional 15-20% of the share capital within 5 years to meet the MPS norms. Such mandatory dilution could lead to an overhang of free-float shares, and the anticipation of such an event could adversely affect share prices. To support the proposed relaxations, SEBI’s analysis shows that even with a lower MPO, recent large issuers have demonstrated public shareholder numbers and trading turnover comparable to Nifty 100 companies. This supports the view that a reduced MPO may not in itself harm liquidity.

Proposed Tier Framework

Post-Issue Market Capitalization	Existing Provision	Proposed Provision
₹50,000 crore < MCap ≤ ₹1,00,000 crore	MPS of 25% to be achieved within 3 years of listing	MPO of ₹1,000 crore and at least 8% of post-issue share capital MPS of 25% to be achieved within 5 years of listing
₹1,00,000 crore < MCap ≤ ₹5,00,000 crore	MPO of  ₹5,000 crore and at least 5% of post-issue share capital. MPS of 10% within 2 years and 25% within 5 years of listing	MPO of  ₹6,250 crore and at least 2.75% of post-issue share capital. If public shareholding is <15% at listing then 15% within 5 years and  25% within 10 years; If ≥15% at listing then  25% within 5 years
MCap > ₹5,00,000 crore	There was no separate category earlier	MPO of ₹15,000 crore and at least 1% of post-issue share capital with 2.5% minimum dilution   MPS is similar to Tier 2, issuers listing below 15% public shareholding have up to ten years to meet 25%, while those starting at 15% or more have five years.

The consultation paper’s most significant intervention lies in a tiered structure approach being proposed to comply with the norms.

Tier 1: Companies with Post Issue Market Capitalization of ₹50,000 crore but less than  ₹1,00,000 crore

The five-year timeline provides a realistic window, offering sufficient flexibility to allow issuers to gradually dilute their shareholding without triggering price instability, while ensuring that the public float is achieved through various mechanisms, such as further public offerings, offers for sale, and private placements. This will benefit cash-rich companies with concentrated shareholding, since they can access the public market without significant dilution.

Tier 2: Companies with Post-Issue Market Capitalization of ₹1,00,000 crore but less than  ₹5,00,000 crore

The proposal appears to be a change from the earlier provision. The new proposal reduces the minimum float and doubles the time required to comply with MPS requirements. The changes address the practical concerns that large IPOs face, enabling promoters to plan accordingly. However, a 10-year window allows promoters to retain a high majority stake for a longer period, thereby limiting public and institutional oversight. With low public debt, liquidity would remain low, and governance checks would weaken.

Tier 3: Companies with Post-Issue Market Capitalization exceeding  ₹5,00,000 crore

This tier caters to the largest issuers in India. It opens doors for mega IPOs that were earlier hesitant to the high dilution requirements. It could also attract foreign companies. This could significantly increase the number of large-cap listings, enhancing the depth and breadth of the Indian equity market and providing investors with access to a broader range of stable companies.

The paper further proposes that the revised framework should also extend to already listed issuers that have yet to achieve compliance with the MPS norms. To ensure equitable treatment, such companies would likewise be eligible for the extended timelines prescribed under the new structure, allowing them additional flexibility in meeting the MPS requirements.

Amidst the relaxations, SEBI has also proposed retaining the retail quota at 35%, modifying its consultation paper dated July 31^st, 2025, which suggested reducing the retail quota from 35% to 25% for IPOs exceeding ₹5,000 crore. SEBI chose to relax the MPO requirements rather than reduce the existing quota since lowering retail participation would limit access for small investors and reduce the inclusiveness of the IPO market. By easing the dilution requirements, SEBI addresses the core issue, which is the difficulty large issuers face in offloading large equity upfront while still preserving access for retail investors at 35%.

III. ANALYSIS

When benchmarked against global practices, SEBI’s proposed framework appears unusually lenient. Singapore’s public float requirement ranges from 12% to 25%, while Australia’s is set at 20%, and London’s is at 10%. In the US, the requirements are US$40 million for the New York Stock Exchange and US$45 million for the Nasdaq. The Hong Kong Stock Exchange (HKEX), long known for its 25% minimum float, has recently reformed its rules to lower the threshold for mainland-listed firms whereby the firms must now float a minimum of HK$3 billion or 10% of outstanding capital, down from 15% while for smaller issuers, the requirement ranges between 5% and 25% depending on market value, and the general float requirement of 25% would still apply in most cases.

SEBI’s tiered approach pragmatically recognises the realities of large offerings. However, starting floats as low as 2.75% and compliance windows stretching to ten years could limit liquidity, weaken governance checks and constrain effective price discovery. Prolonged promoter dominance risks restricting institutional investor oversight and could reduce the depth of the secondary market.

IV. CONCLUSION

SEBI’s proposals reflect a conscious choice to prioritise capital formation in the Indian equity market. By easing the MPO requirements and extending timelines for achieving MPS, the tiered framework aims to make public listing more viable for large issuers, encouraging mega IPOs that may otherwise delay listing or opt to list overseas.

At the same time, the trade-offs are material. A lower initial public float and prolonged promoter control can result in restricted liquidity and slower price discovery, particularly when shareholder activism and institutional monitoring are still involved. Despite markets like Hong Kong and Singapore also allowing lower floats for large companies, they balance this with tighter governance requirements. In India, those oversight mechanisms are still at a nascent stage.

The effectiveness of these reforms will depend on SEBI’s ability to pair dilution flexibility with enhanced disclosures, supervision and enforcement. If these safeguards are strengthened in parallel, the framework can successfully broaden participation in Indian capital markets without compromising on market integrity; if not, it risks extended promoter dominance and weakening the very transparency that public listing is intended to ensure.